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Rescue Your Old, Low-Balance 401k Before It's Kicked To The Curb In 2024

Rescue Your Old, Low-Balance 401k Before It's Kicked To The Curb In 2024

December 28, 2023

Don't Let Your Forgotten 401(k) Haunt Your Financial Future

Are you among the countless individuals who have a dusty, half-forgotten 401(k) from a previous job lingering in the financial shadows? If so, it might be time to shine a light on it before your old company takes action you might not appreciate.

Since 2001, 401(k) sponsors have had the authority to boot individuals out of their plans and into an IRA account if their balance falls between $1,001 and $5,000. However, in 2024, that threshold is climbing to $7,000, potentially impacting around 800,000 more people with involuntary rollovers.

Now, this may sound like a convenient administrative move, but there are substantial downsides.

First off, employers often safeguard themselves by directing IRA funds into "safe" cash-equivalent investments, disregarding your initial choices from the 401(k) plan. Over time, this cautious approach might erode the purchasing power of your account due to inflation. On top of that, IRAs often come with hefty fees, some reaching as high as $115 annually. Imagine a $2,500 balance facing a 4.6% expense before even considering the expense ratio of the fund you're put into.

If your old 401(k) balance dips below $1,000, brace yourself for even harsher treatment. Employers reserve the right to cash you out, leaving you exposed to income taxes on the account balance, along with a 10% penalty if you're under age 59 1/2.

But wait, it gets messier.

Imagine your old employer sending a check that never reaches you or sending tax-related documents to an outdated address. Cue confusion, potential tax filing discrepancies, and unexpected encounters with the IRS down the road.

So, what's the solution?

Avoid the involuntary rollover or forced cash-out by taking charge of your account balance. Consider rolling it into an IRA of your choice or another 401(k) plan that accepts rollovers, perhaps at your current employer or a more substantial plan from another former job.

Fortunately, the financial services industry is stepping up to aid job-hopping Americans. 

While this assistance is promising, it's wise to take matters into your own hands before someone else makes financial decisions you might regret. Act now to secure your financial future and regain control over your forgotten 401(k).